Free Trade, Good or Bad?

With Trump and Sanders arguing against trade pacts, is free trade good or bad for the U.S. The United States in 2015 reached a deal with eleven other Pacific nations for a trade zone called the Trans-Pacific Partnership (TPP) to lower trade barriers and establish rules and regulations for the involved countries. Approximately 40 percent of the global economy would be included in the partnership. However, first it has to be approved by Congress as well as legislative bodies in the other participating countries. While this would be helpful in counteracting the commercial power of China, there is a lot of opposition in the United States, with unions fearing job losses and environmental groups concerned as well. There is also Republican resistance over providing President Obama with any sort of victory by voting for the TPP. Multinational corporations for the most part are in favor of the pact.

While free trade between nations would appear to provide significant benefits as shown by the E.U, there are problems that have to be worked out to truly reap these benefits. Though protectionist policies may temporarily save jobs in high cost countries, eventually products that are manufactured less expensively will command the marketplace. And though cheap labor may attract global corporations to certain countries, sophisticated workers may be required for particular jobs, increasingly so as work is performed by robots and computers. There is also the cost of transporting goods made in another country thousands of miles distant to the nation where the product will be used. Disregarding environmental protections to lower production costs will also come back to haunt nations that allow this. Health has been impaired in countries such as China that has to clean up the pollution in its air, soil, and water. Nations look after their own interests and global free trade will only become a reality when enough nations believe it suits them.

The bottom line is that there are winners and losers in free trade and trade agreements like NAFTA and the TPP. And years or even decades may be necessary to determine whether the benefits exceeded the damages for the nations that sign the agreements. Even economists have had difficulty deciding whether free trade helps developed countries or hurts them, though in the past, most thought that in the long run it was beneficial. As trade generally augments global economic output, economists believed that workers whose jobs vanished because of imports would rapidly find work in other fields that were expanding. Now, they are not so sure. Currently, there is much debate among economists over whether trade deals have been worthwhile for America. Previously, when trade was mainly between rich countries, labor costs were not that different from nation to nation. But trade agreements with nations whose labor is exceeding cheap compared to developed nations have been a different ballgame.

Many economists believe that the TPP will result in job losses and increased income inequality in all the participating nations, but even more so in the United States. There is little question that China, Japan, and Korea used America’s desire for free trade for their own advantage over the years, protecting their own nascent industries and using currency manipulation to sell goods to the U.S. and other developed nations. And trade imbalances between China and the United States have continued, with exports from the U.S. much smaller than imports from China, giving the latter nation a persistent surplus. If exports to China had increased proportionately, with Chinese consumers buying imported products instead of saving their money, many more jobs might have been generated in America. That would have diminished unemployment and underemployment, along with some of the global trade imbalance. Trade agreements may have saved some American corporations’ intellectual property and copyrights, and respect for some patents by foreign governments, but they did nothing for American workers.

Though the goods that came to America from China and other countries may have been cheaper than those made by American industries, and American consumers benefitted from this, many factories and businesses were ruined by the influx of these inexpensive products, and millions of workers lost decent-paying jobs. And even though some American products were sold to nations abroad through these trade agreements, there was pressure to keep prices down to compete with cheap labor in other countries. This resulted in diminished wages for those American workers who kept their jobs. Multi-national corporations and their executives did well with these trade agreements, but the average worker, particularly those who were uneducated, were badly hurt. Government programs for further education and retraining for different fields have not been adequate to salve the wounds of those who lost jobs and the reasonable wages they were earning. And it should be remembered that it was American companies like Walmart that were importing the products from China and other low-wage countries to heighten their own profits, disregarding the effect it would have on American workers.

Donald Trump on the right and Bernie Sanders on the left have used rhetoric that resonates with the disaffected middle and lower classes, white men with high school educations or less, who are now unemployed or unable to find well-paying jobs that would propel them back into the middle class. But the candidates’ promises to bring factory jobs back from Mexico or China ring false. The jobs will not return even if the factories do. Trump’s idea of 45 percent tariffs on Chinese products and breaking NAFTA will accomplish nothing for American workers but will raise prices for consumers. With factories increasingly automated globally, those that once employed five hundred workers, may now be able to function well with five or ten workers to see that the robots and computers are running smoothly.

It is no different than mega-farming where mechanization has cut the number of men and women needed to pick vegetables. Fifty years ago, 45,000 workers were required to pick and sort 2.2 million tons of tomatoes for ketchup in California. In 2000, only 5000 workers were necessary to harvest 12 million tons with the machines that had been developed. As farm output has skyrocketed, employment in that sector has fallen in the U.S. during the 20th century from 41 percent to 2 percent. Manufacturing employment can be expected to follow a similar course, no matter what the politicians say. At present it encompasses 8.5 percent of non-farm jobs, down from 24 percent in 1950, and may have further to go.

Though changes in trade policy may not make a significant difference in manufacturing employment, developed nations including the United States should try and maintain as much manufacturing domestically as possible, even with the smaller number of workers that will be utilized. However, de-industrialization in advanced countries means transitioning to a service economy, with well-paying jobs that require at least some level of education or training. Funds for retraining will have to come from government, industry, or both. In the United States, neither the Republicans nor the Democrats have paid enough attention to the travails of unemployed disaffected workers, stoking populist anger that has yet to be assuaged. Perhaps now, their angry voices will begin to be heard.

As usual I think what is lacking in discussions about major complex issues is that everyone is using a slightly different definition for things, like Free Trade. I’m a died in the wool Adam Smith Free Market guy myself, but that position is frequently misunderstood. I am all for trade, but what I’m not for is all the other things they sneak into these large complex deals under the guise of something that is good, Free Trade, in order to screw people over.

For instance, I want our markets to have access to cheaper and more goods from other countries. That benefits everyone in the USA except for any manufacturing sector that can’t compete with those goods. Net gain. What i don’t want and what is often set up in these agreements are things like tax breaks for American manufacturers to move out of country. If you want to set up in Mexico or Indonesia, fine, but the taxpayers shouldn’t be subsidizing it to sweeten the pot. I don’t like that there are international legal courts that give standing for private corporations to sue and force countries to do as they want. That is terrifying. John Oliver has a great special on that and it was a real eye opener, they already exist due to other trade agreements like NAFTA, and will only grow stronger under the TPP.

Whether we like it or not trade is going to happen. The fact is is that it is really easy to ship goods halfway around the world these days. That means one way or another domestic manufacturers will have to compete with manufacturers around the world. There is no changing that basic fact. We can impose tariffs if we want, but all that does is basically put a tax on everyone who buys stuff here for the sake of the small segment of manufacturers. It limits options, and frankly I can’t think of a single example in history where a nation basically cut off trade or hamstrung it where that made life better overall for anyone but the specific industries that it protected, at the expense of society overall.